EU & US Manufacturing PMI Helps Boost Equities, RBA Likely To Hold Rates Steady Following No Clear Winner In Election, ASX SPI200 Futures Up 32 Points

European equity markets climbed higher on Friday to cap a third day of gains with the FTSE100 now higher than pre-Brexit levels as the decline in the Pound has helped shield U.K. equities with overseas exposure while other key benchmarks lag behind. The first image below highlights key European indexes and although they have been supported this week by comments that central bankers stand by ready to act, they continue to price in uncertainty moving forward from the Brexit referendum. The DAX30 gained +0.99%, CAC40 +0.86%, FTSE100 +1.13% and the Euro closed +0.33% higher following better than expected manufacturing PMI data and stable unemployment figures. The Markit manufacturing PMI (MoM June) for Germany increased to 54.5 vs an expected 54.4, the Euro-zone rose to 52.8 from a previous 52.6 and for the UK to 52.1 vs 50.1 expected. The Euro-zone unemployment rate (MoM May) matched expectations of 10.1% as it decreased from 10.2% in April.

US equities also pushed higher on Friday with the S&P500 reversing losses to be 0.5% below pre-Brexit levels. Both the S&P500 & Nasdaq100 gained +0.19% & +0.45% respectively and the US Dollar index dropped -0.51% despite US manufacturing data that exceeded expectations. The Institute for Supply Management (ISM) monthly survey for June showed an increase to 53.2 against expectations of no change from the May reading of 51.3. Expectations of a rate hike in the US have been pushed back due to recent weakness in some economic indicators including the disappointing May non-farm payrolls as well as the potential fallout from the U.K.’s vote to leave the EU. The odds of a rate hike calculated from Fed Fund Futures remain below 50% through until December 2017 and the lower for longer expectations will continue to be supportive of equities.

Japanese equities gained on Friday with the Nikkei225 index closing +0.68% higher as the Yen strengthened +0.79% following better than expected CPI data with prices falling -0.4% against expectations of a -0.5% decrease. While this is better than expected the data still highlights the challenge faced by Prime Minister Shinzo Abe & Central Bank Governor Haruhiko Kuroda to achieve the 2% inflation target. The unemployment rate also remained stable at 3.2%, house hold spending decreased -1.1% in line with expectations as were manufacturing indexes. The chart below highlights Japanese government bonds ranging from 2 to 30 years which continue to be pushed further into negative territory as a result of the Bank of Japan’s extraordinary monetary stimulus and investor flight to safe haven assets. More than 80% of the Japanese government bonds market now yield less than zero.

Domestically the ASX200 closed +0.25% higher on Friday as the public prepared to go to the polls over the weekend in the Federal election. The results over the weekend showed no clear winner by either major party raising concerns the next three years could be plagued by political gridlock with a government having to negotiate with smaller parties or independent MP’s. Some postal votes are yet to be counted and six seats remain undetermined with a clear picture likely on Tuesday according to the Australian Electoral Commission. Markets tend to not overreact to Australian politics given both major parties policies on managing the economy are relatively similar however a hung parliament could weigh on business sentiment and therefore investment. The Reserve Bank of Australia is likely to hold interest rates at 1.75% at its meeting on Tuesday awaiting the confirmed outcome from the election and further inflation readings before determining if further action is necessary. The market looks set for a stronger open this morning with ASX SPI200 futures up 32 points as the Australian Dollar is -0.42% weaker. If you’re interested in trading global markets and still need practice, click here to open a free $100,000 Rivkin Trader account.

Please note US markets are closed on Monday for the 4th of July long weekend. 

Data releases:

·         Japanese Monetary Base (YoY Jun) 9:50am AEST

·         Australian TD Securities Inflation (YoY Jun) 11:00am AEST

·         Australian Building Approvals (YoY May) 11:30am AEST

·         U.K. Markit Construction PMI (MoM Jun) 6:30pm AEST

·         Canadian Manufacturing PMI (MoM Jun) 11:30pm AEST

Source: Rivkin, Bloomberg

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This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via or by phoning +612 8302 3600.

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